Economic Resilience

Nepal's economy can bounce back quickly and post decent growth despite persistent challenges. That's what a new projection by the National Statistics Office (NSO) has shown. According to the NSO, the economy for the Fiscal Year 2025/26 will see the GDP growth of 3.85 per cent. The estimate, though somewhat lower than the previous fiscal year’s 4.43 per cent, remains stronger than those recently made by multilateral donors – World Bank and Asian Development Bank – which have projected the growth to hover at 2.3 per cent and 2.7 per cent, respectively. However, this is significantly lower than the target of 6 per cent set by the previous government.   

For this year, the preliminary estimates indicate that the growth rates of the primary, secondary, and service sectors are expected to be 1.63 per cent, 5.77 per cent, and 4.21 per cent, respectively. Agriculture will contribute 24.5 per cent to the economy, manufacturing 13.7 per cent, and the service sector 61.8 per cent. The overall trend in agricultural production is expected to show moderate growth, with paddy production projected to decline by 4.16 per cent. Amid these, however, the electricity and gas sector has emerged as a bright spot in the economy, with the sector predicted to grow by 20.93 per cent. This transformation is propelled by the leap the nation has consistently been making in hydropower generation. Trailing it are financial and insurance services at 9.16 per cent, transportation and storage at 5.79 per cent, information and communication at 5.53 per cent, and administrative and support services at 4.52 per cent. 

The outlook is based on the assumption that the ongoing war in Iran will gradually subside and the nation will dodge major disruptions the war might unleash. But what if things didn't go as expected? Signs of strain have started showing. As transportation faces rising cost, inflation looms on the horizon, putting the consumer price of many essentials out of reach for countless households. One sector where the strains are acutely being felt is the construction sector. Construction projects account for the lion's share of the economic output. With the contractors halting the construction of the development projects due to sky-high prices of fuel and construction materials, development spending will take a hit. The onus is on the government not to let this happen, even if it means providing them with subsidised fuel through tax cuts. Another worrying thing is the sluggish performance of the agriculture sector. The prospect of disruption of fertiliser supply tied to the war threatens to make matters worse, as it not only dents food security but also jeopardises livelihood of millions of people.  

Experts unanimously agree that the most effective way to blunt the fallout of the war is to wean the economy off the addiction to imported fossil fuels, the import of which is not only a drain on the foreign exchange reserves but also a major source of life-threatening air pollution. Overdependence on remittance and a weak domestic production base have been the Achilles heel of the economy. The time couldn't be better to turn the tables. Cushioning the economy against the global shocks means laying the solid groundwork for industrialisation to achieve self-sufficiency, at least for staple items. With the formation of the new government, hopes have risen that the government would take bold steps to that end.